Is it riskier being out of the markets..?
March 15th 2012
Three months into 2012 and, apart from the snippets of Siberian weather, this has not materialised into the winter of discontent that many feared.. (markets wise I mean)
I know it’s not unusual to a have new year rally in equity markets, but with the grim reaper AKA ‘Eurozone Crisis’ standing in the doorway it would have been easy to assume that any new year rally would be short-lived..
However, as we near the end of the first quarter, the FTSE 100 has climbed an impressive 400 points. No doubt many investors will have seen this is an opportunity to take profits on their holdings or even short the market, but now that investors are out of the market there could be continuation of this rally. I actually spoke with a broker on the train this morning, and he said that some shrewd investors felt it was a greater risk not being in the market.
In January I touched on why the stock markets could see gains this year, (i.e. where else can you get a yield that many blue chip companies still deliver and the potential default of some of the weaker Eurozone countries being already priced in the market,) and my commentary has not changed, with still no obvious reason why equities could not go higher. But I would like to add a condition here; if or when Europe sees an actual default the markets will no doubt shudder a little, but are likely to only pave the way for further gains.. One step back, two steps forward springs to mind.
The problem is I fear many investors are gearing up positions for that short, maybe sharp, fall in stock prices, however the opportunity to take profits or go long again might be short-lived and lost in the blink of an eye.
It’s the same with the Euro currency itself, which should initially weaken on a default but find strength again as the relative superpowers in Northern Europe rebuild on more solid foundations creating a very strong prosperous ‘New Eurozone’…
Right now I don’t think many traders or investors expect the stock markets to roar, but the true contrarian inside me says otherwise..
Interest rates, certainly UK ones, have been stuck at 0.5% for years…and it’s extremely difficult to intelligently guess when things are going to move again. If we see an increase (or decrease !) people will feel there is assertive direction to economic growth which makes investment choices easier to make, although that does not ensure profits are easier to make !
Whatever materialises, 2012 feels like a different year to 2011. The problems and issues are the same, it’s just we have moved on..